Apple falls on profit warning

3 January 200212:43 am GMT

Shares of Apple Computer Inc. (Nasdaq: AAPL) fell 9 percent Tuesday after the company said it would fall well short of Wall Street estimates because it didn't have enough chips to meet demand for its G4 computers.

In early trading, Apple was off 7 5/16 to 71 3/4.

Company officials said the delay of planned deliveries of its G4 processor chips from Motorola Inc. (NYSE: MOT) is mainly responsible for the fourth-quarter shortfall.

Apple: Cut 'em some slack? Add your comments.

Warburg Dillon Read cut Apple's fiscal 1999 earnings estimates to $2.53 a share from $2.85 a share. Banc of America cut Apple 1999 earnings estimates to $2.55 from $2.87. But Apple was reiterated a "buy'' by analyst Louis J. Mazzucchelli at Gerard Klauer Mattison & Co. He set a 12-month target price of $90 a share.

The declines mirrored a drop in after-hours trading. After more than a year of spectacular sales and earnings growth, Apple finally delivered some bad news Monday, warning that its fourth-quarter sales and earnings would fall short.

The damage

The Cupertino, Calif. company said it now expects to report net income of between $75 million to $85 million in its fourth quarter, well below most analysts' estimates of $120 million.

The revised earnings estimate puts Apple closer to 45 cents to 50 cents a share in the quarter, well below the First Call estimates of 76 cents a share. Sales are expected to fall between $1.3 billion to $1.4 billion.

Apple will announce its fourth-quarter earnings Oct. 13.

"(Apple) really cut it close this quarter and it didn't work out," said Mazzucchelli. "These things happen. It's a new processor, new technology and Motorola is just having hard time ramping up for this demand."

One supplier blues

Although many tech companies have numerous suppliers, Apple is largely dependent on Motorola for its chips. IBM Corp. (NYSE: IBM) used to make chips for Apple, but stopped.

For its part, Motorola painted a positive picture. "We're thrilled with the overwhelming and positive response in the marketplace for the PowerMac G4," said the company in a statement. "Motorola views this as a great endorsement for its G4 processor. There are no surprises here. Motorola has advised Apple of the G4 schedule status every day. The only time a company does not encounter these kinds of challenges during a product launch is when it produces a chip nobody wants to buy."

Apple said it has received orders for more than 150,000 Power Mac G4s since the product was rolled out three weeks ago.

Wait and see

Analysts in general were giving Apple some slack on its earnings miss. The shipping delays in the fourth quarter could result in a huge backlog in its first quarter.

"We are very disappointed that this quarter's deliveries of G4 processors will be lower than planned," said CFO Fred Anderson in a statement. "Orders for the Power Mac G4 have been strong and we anticipate ending the September quarter with a substantial order backlog."

Interim CEO Steve Jobs called the shipping delays "a temporary issue" and said "we hope to catch up early in the coming quarter."

If Apple can deliver in the first quarter, investors will be forgiving. First Call consensus expects Apple to earn 89 cents a share in its first quarter.

"We knew the numbers would be lighter," Mazzucchelli said. "They're going through three major product transitions right now. It also looks like there could be some constraint on the highest speed parts in the first quarter, too."